No abstract

We investigate changes in the quality and cost of audit services surrounding PCAOB Rule 3211, which requires disclosure of audit partner names in Form AP. To isolate changes due to Rule 3211 from other confounding factors, we use difference-in-differences analyses with separate control groups, including a group of companies that disclosed partner identities prior to Rule 3211. Our study also incorporates several measures from prior literature to proxy for various dimensions of audit quality. Evidence from the difference-in-differences analyses reveals that any immediate impact of Rule 3211 on audit quality or fees is limited to specific dimensions of audit quality, specific control groups, and/or specific company characteristics. We reach this conclusion after considering alternative research designs and evaluating confidence intervals for statistically insignificant coefficients. We caution that our findings only provide initial evidence and further research is necessary to evaluate other potential impacts of Rule 3211.

Small accounting firms represent important participants in the audit market, yet details of how they operate and develop competencies remain unexplored. Small firms often join forces through accounting associations and networks (AANs), which may help them overcome significant challenges commonly faced by smaller firms. We interview 37 partners from 18 firms representing nine AANs to examine how small firms leverage their AAN membership and to understand the related implications for audit quality. Our findings indicate that small firms acquire needed resources and enhance their market legitimacy through AAN membership; however, the nature and extent to which they do so varies by AAN type. Importantly, we also find that the majority of respondents perceive AAN resources, especially access to expertise, as critical to their firms' audit quality. Our research, informed by a theoretical lens based on resource dependence and legitimacy, enriches existing auditing literature, provides a new perspective for member firms and regulators, and responds to recent calls to understand factors affecting accounting firms' competencies.

This study examines the audit pricing effects when auditors specialize in industries conducive to transferable audit processes. Our results indicate that industry specialists charge incrementally lower fees in industries with homogenous operations, and particularly in industries with both homogenous operations and complex accounting practices. Moreover, we discover that audit quality is no lower for clients audited by these specialists offering fee discounts, consistent with a conclusion that the reduction in fees indicates cost efficiencies rather than lower-quality audits. Further analysis indicates that the shared economies of scale only occur in a subsample of client firms with relatively high bargaining power. When considered in conjunction with prior research using a survivorship approach, our study provides evidence that certain industries lend themselves to specialization because auditors generate cost-based competitive advantages without compromising service quality. Data Availability: Data are publicly available from the sources identified in the paper.

U.S. firms recorded an unprecedented number of asset impairments during the recent financial crisis. We investigate the timing of these losses in the context of two competing views on how firms use discretion over asset impairments. The first view posits that firms record impairments to convey private information as part of their commitment to a conditionally conservative reporting strategy. The second view argues that firms use their discretion to report opportunistically by delaying the recording of bad news. Consistent with the first view, we find that firms recorded timelier asset impairments during the financial crisis if they reported more conservatively in the five years preceding the crisis. Further tests show this relation is greater for firms with strong corporate governance, industryspecialist auditors, and high leverage, indicating the importance of monitoring mechanisms in determining how firms handle the discretion involved in impairment decisions. We also test for the consequences of timely asset impairments during the financial crisis and find that firms reporting conservatively both before and during the crisis were able to acquire more debt financing, and their publicly traded bonds suffered smaller increases in illiquidity. Collectively, our study highlights the role of asset impairments in firms' accounting choices over time.